U.S. food and drug retailer Safeway (SWY) announced an agreement to sell its Canadian operations to Sobey’s, a Canadian grocery chain operated by Empire Co, Ltd. The unsolicited all-cash transaction is valued at $6 billion (C$5.8). Shares of Safeway were ahead nearly 10% in early Thursday morning trading.
Safeway Canada will sell 213 full-service grocery stores, in addition to 200 in-store pharmacies, liquor stores, fueling stations, and distribution centers as part of the transaction, which will be financed through equity and debt offerings along with cash generated through the sale and leaseback of some of the real estate being acquired.
The transaction has been approved by the Boards of Directors of both companies, and is expected to close by the end of the fourth quarter.
Safeway will use the proceeds of the sale to pay down $2 billion in debt, buy back shares and invest in unnamed future opportunities.
Empire is looking at the transaction as a way to solidify its hold on the #2 grocery-chain spot in Canada behind Loblaw Companies Ltd, and to fend off growing competition from Walmart (WMT) and Target (TGT). Both U.S.-based retailing giants have moved to open and expand operations in Canada.
Written by Marc Bastow, Assistant Editor at InvestorPlace.com. As of this writing he did not hold a position in any of the aforementioned securities.